Recession and Resins - What does 2023 hold for PET prices?
Published by ChAINov 10 2022
This year, ChAI entered a data-licensing agreement with S&P Global Commodity Insights in order to provide real-time commodity price forecasts based on Platts price assessments. One of the first Platts commodity prices added to ChAI’s platform was PET, specifically Bottle Grade NWE. As one of the most widely used polymer resins in the world, PET plays a vital role in the modern global economy, so for this week’s market insights article we’ll look at some of the key forces driving PET prices at present.
Faltering Feedstock Costs
From the early days of the Covid-19 pandemic until summer 2022, PET prices had generally maintained a strong upwards price trend that was supported by supply chain shortages, increased consumer demand and rebounding energy costs. Since late summer however, the latter of these drivers has lost momentum. Brent Crude Oil prices peaked in early June and steadily declined until the end of September, although they have recently found support from OPEC’s production cut that was announced in early October. Meanwhile, natural gas prices in Europe similarly declined from the astronomical peaks of late August to temporarily drop below €100 per megawatt hour in the last week of October. Gas prices have also since regained some strength as the mild autumn experienced in Europe gradually gives way to colder winter weather and demand for heating increases.
The downward drift of oil and gas prices, as key upstream feedstock materials in the PET production process, has caused a similar decline in PET prices. It is worth nothing that prices for the resin remain high in comparison to previous years. However, this reflects the significant gains of the past 18 months rather than the present outlook for the market.
PET and Consumer Spending
The recent decline in PET prices may encourage a decrease in output from major producers, however the prospect of a global recession poses a major threat to resin prices. For some wider context, PET has a number of properties which make it an ideal packaging material, from its strength and flexibility to its resistance to heat and chemicals, leading to the resin becoming an ubiquitous material in many industries. For food and beverages, the plastic keeps food fresh for longer periods of time, prevents any contamination and is transparent so is easy for the consumer to view the product. In the pharmaceutical and cosmetics industries, the lightweight nature of the plastic makes it easy to transport large quantities of containers, while it is also ideal for storing material which need to be kept under certain conditions due to being an unreactive material. Outside of packaging, PET is also widely used in the automotive industry and in textiles, where it is used in its fiber form and is more commonly known as polyester.
One thing shared by many of the aforementioned industries is the extent to which they are fuelled by discretionary consumer spending, which is therefore a key driver for PET prices. With many nations across the world poised on the brink of recession, there is likely to be a sustained decline in spending on consumer goods which would reduce demand for PET and consequently a decline in prices.
ChAI’s Influence Chart for PET pricing on 1 year horizon
On a 12 month horizon, ChAI’s forecast is bearish for PET prices and the influence chart above provides an indication of the data driving this outlook. The macroeconomic and currency families on ChAI’s platform are both heavily bearish for the one year forecast, reflecting many of the downside risks associated with the aforementioned global economic situation and widespread currency devaluation. ChAI’s freight family feature, however, is currently projecting a more bullish impact on PET prices over the next 12 months. A key driver behind this signal is a decrease in crude oil exports from the UAE, which is likely a reflection of OPEC’s commitment to reduce production, squeeze the crude oil market and maintain high prices.
As PET continues to be one of the most widely used resins across many industries, the price of the plastic can have a significant impact on the product margin of many companies. As a result, having access to insightful market intelligence on PET can be crucial for anticipating cost changes and implementing strategies to manage them effectively. To learn more about how ChAI can assist with this, get in touch via the form below.